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Threats and Opportunities that Digitalization brings to the Luxury Sector


Over the past twenty years, the luxury industry has gone through significant changes. Due to digital advancement and shifting economic trends and changing consumer behavior, the sector has experienced a new competitive atmosphere where conventional strategies will not be sufficient in maintaining profitability and growth. To tackle the challenges associated with representing a lifestyle to consumers and the changing digital platforms, companies must assess the relevant trends and seek insight. Technology is an essential channel of creating brand advocacy and increasing its equity through advertisements and promoting a relationship between customers and luxury companies. The impact of digitalization can be considered concerning changes to the enterprise, future disruption, and client experience.

Contribution of Technology to the Luxury Sector

Technological transformation has restructured the luxury industry significantly by changing how brands reach out to customers and how these consumers interact with companies. Furthermore, the internet has transformed buying habits, and organizations must respond to the shift (McKinsey and Company, 2018).

The landscape has been changing rapidly, thus requiring retailers to keep up and maintain a large number of customers. Various companies have disappeared because they failed to reach and recognize digital advancement and align them with their organizational objectives. The evolution of technology into luxury has led to a shift from traditional methods of customer service to a modern way of identifying and meeting their needs (Rienetta, Hati, & Gayatri, 2017). Before, luxury was associated with exclusivity as the fundamental aspect for appeal and fro justifying their high prices. However, the transformations have led to the need to have a high-quality life, continuous and comprehensive access to knowledge, and to shrink the world in terms of intercultural mingling and distance. Digitalization is also vital in helping companies to reevaluate primary enterprise processes and the creation of a model where retailers and brands use data to capture the preferences of emerging customers, build client intimacy and streamline the process of turning ideas into new products (Baker Retailing Center and Wharton University, 2016).

Luxury brands also apply a clienteling digital support system that allows for conversational commerce, thus allowing employees to provide the best services to customers. Furthermore, they are investing in technology that enhances a personal experience for shoppers to drive engagement and loyalty (Turner, 2016). Luxury brands have begun using artificial intelligence and machine learning-powered software to deliver personalized product recommendations. The objective of this is to anticipate the needs of customers and ensure that they create a competitive advantage against other brands. Since clients are turning to their mobile phones for everything from product assessment to payment, luxury brands are pursuing the desire by their customers to shop anywhere at any time by introducing mobile payment methods, apps, integrated return services, and real-time promotions (Rienetta, Hati, & Gayatri, 2017).

 Currently, retailers are taking advantage of the digital advancements in geo-referencing to create push notifications and using beacons to engage and influence their shoppers. Despite a majority of luxury sales today still taking place in physical stores, e-commerce is creating a benchmark for what shopping experience should be like (Berridge, 2018). Therefore, to maintain the number of customers buying their products and services, luxury brands are using virtual and integrated reality to engage clients with enhanced in-store experiences. Furthermore, digitalization has led to an increase in luxury startups due to new business models characterized by e-commerce. Various companies are teaming up with each other to increase their visibility to the new generation of customers through different technological platforms (Baker Retailing Center and Wharton University, 2016).

Threats that Digitalization brings to the Luxury Sector

The primary danger that digitalization poses to luxury brands is the liability of e-commerce platforms. Various distributors and e-commerce platforms are using brand names concerning sponsored links and AdWords, thus misleading customers. Luxury companies have been connecting and interacting with consumers over the internet. However, it is increasingly challenging to ensure that their brands are easily accessible and that customers are not misdirected to a competitive or alternative website. While in physical stores, a client looking for a luxury brand cannot be easily misled, online platforms present this risk (McKinsey and Company, 2018).

Technology also presents the possibility of an increase in turnover. Various luxury brands have closed down, and others reduced the number of employees due to the shift to digital platforms. With most products being sold online, customers do not need to visit stores since delivery and shipping services can also be provided, e-commerce has led to the opening up of several online brands that do not require several employees (Turner, 2016) (Rienetta, Hati, & Gayatri, 2017). Therefore, luxury brands have to consider the internationalization of their enterprise to ensure that they do not lose their market share. Furthermore, since the customer trends are shifting, the current clients look for affordability, and digitalization provides them with options that they can access using their phones. The result is that this may threaten luxury brands that have thrived on providing quality products at specific prices (Berridge, 2018).

Technology has trained customers to expect continuous excitement; thus, if a luxury brand fails to align with these expectations, they are likely to lose their market segment. The most exciting experience that a client has online sets the bar for the next online shopping activity and creates certain expectations (Turner, 2016). Since digital is no longer a channel for communication and sales, customers require brands to re-invent their role in the consumer experience. Therefore, luxury brands have to set aside finance and continually create strategies that will ensure this excitement. The ones that have been unable to achieve this either close down or are overtaken by competitors (Baker Retailing Center and Wharton University, 2016).

Opportunities that Digitalization brings to the Luxury Sector

Using the customer-centric approach, luxury brands can manage to add a personal touch to their products and services. Embracing technology enables companies to communicate directly to clients and allowing them to participate in making decisions about the areas that require improvement. Being digital-savvy also enables luxury brands to offer a memorable and exceptional experience since employees can master all the touchpoints throughout the lifetime of customers. Additionally, technology is useful in restoring authentic client experience and enhancing customer relationships that defined luxury (Yoo & Park, 2016). It is also impacting how luxury shoppers select their brands and goods since a majority of sales today are digitally influenced. Consequently, they follow a mix of an offline and online journey and look for suggestions from trusted bloggers or advice from peers on social media before entering a store. Customers then use digital platforms to post about their purchases and provide reviews about the products and services offered by the luxury brand that they accessed for online sales (Yoo & Park, 2016). The most significant luxury categories are accessories, such as small leather goods and beauty products. Clients shopping for affordable luxury are inclined to buying online and are mainly younger. Moreover, the millennial segment is willing to experiment. Once the luxury brand has identified and understood the platforms that are fundamental to marketing, they can carefully draw up a strategy to attract and inspire their target audience. Furthermore, they can take advantage of this to allocate a budget for maintaining their online systems (Berridge, 2018).

Technology provides an opportunity for luxury brands to maintain and achieve loyalty from customers. Millennials have led to a shift in a consumer mindset that requires personalized local experiences. Through feedback and application of technology to create digitalized products, customers can maintain purchasing products from individual companies (McKinsey and Company, 2018). Technology has been vital in creating alternative materials for luxury brands, with companies integrating the use of digital innovations in their products. Additionally, retailers are using various tools to provide one-on-one service and ensure that staff members assist clients by having the necessary information and delivering products that are similar to online store browsing (Berridge, 2018).

Digitalization is opening up new market segments that luxury brands can explore. Since customers have shifted to using online stores, companies have to maintain an exclusive and unique client experience, which will help in their expansion. Online reviews, social media, mobile connectivity, and in-store technology can benefit online brands by conveying, protecting, and reinforcing their luxury status (Berridge, 2018). The behavior of the shopper can be influenced by in-store experiences that engage the senses through lighting and music. Additionally, luxury brands can gather information through technology to enhance in-store skills, which is vital for customers with purchase intent. Moreover, it fosters their relationship based on clientele, past purchases, and their experiences (Baker Retailing Center and Wharton University, 2016).

Recommendations for Luxury Brands

Digitalization requires luxury brands to master how they can use technology in brand management, retail, and customer engagement to increase sales and ensure that the needs of their clients are satisfied. Additionally, they have to prepare for continuous transformation. Luxury brands have to apply every element of technology in running their business to understand the risks that they may be exposed to and the opportunities it presents (McKinsey and Company, 2018). Digitalization also requires organizational changes; thus, digital experts should be involved in decision-making and marketing of the brand products and services. Furthermore, luxury brands should be willing to apply new types of technology, such as artificial intelligence, in running their processes, while ensuring that they adhere to legal provisions. Authenticity and intimacy in customer relationships will be achieved through the implementation of advanced analytics in organizations. Therefore, despite the existing challenges, technology can be used to improve customer engagement and provide a broader market segment (McKinsey and Company, 2018).


The luxury sector has been experiencing significant growth over the years, with opening markets in various countries. However, due to stagnation and resistance to technological advancement, brands had to restructure, thus affecting their physical stores and employees. Digital transformation has been essential in improving customer experience and providing services without the need for clients to visit stores physically. However, to maintain profits and increase their market segment, luxury brands have to offer and maintain an excellent shopping experience both offline and online by ensuring that the experience of a digital store complements, extends, and resembles that of a physical store. Therefore, despite the challenges and resistance to technology, luxury brands have to be open to creativity and develop strategies that will ensure that they maintain their customers and expand to broader market segments.

Works Cited

Baker Retailing Center and Wharton University. (2016). Online Luxury Retailing: Leveragging Digital Opportunities. Research, Industry Practice, and Open Questions (p. 80). Baker Retailing Center.

Berridge, H. (2018). A Practical Look at the Challenges Luxury Fashion Brabds Face in the Wake of Digitalization: Is it Time that Luxury Brands Learn to Love E-Commerce Platforms? Journal of Intellectual Property, Law & Practice, 13(11), 901-909.

McKinsey and Company. (2018). The Age of Digital Darwinism: Enhance your Customer Experience and Transform your Business to Survive and Prosper in the Luxury Digital Era. Apparel, Fashion and Luxury Group, 1-24.

Rienetta, F., Hati, S., & Gayatri, G. (2017). The Effect of Social Media Marketing on Luxury Brand Customer Equity Among Young Adults. International Journal of Economics & Management, 11(1).

Turner, M. (2016). Evaluating the Perception of Luxury Brands in Today`s Marketplace and the Impact of the Digital Age on these Brands.

Yoo, J., & Park, M. (2016). The Effects of E-Mass Customization on Consumer Perceived Value, Satisfaction, and Loyalty toward Luxury Brands. Journal of Business & Research, 69(12), 5775-5784.

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